How Are Chapter 7 And Chapter 13 Bankruptcy Different?

27 December 2022
 Categories: , Blog


Are you in a financial situation where you need to file for bankruptcy, but you are not sure which version is best for your situation? If so, it will help to know how Chapter 7 and Chapter 13 bankruptcy are different so that you can pick the best one for your situation.  

Credit Report Impact

Know that any bankruptcy is going to affect your credit report since lenders will be able to see that you used bankruptcy in the past and they will be less likely to loan you money. However, how long a bankruptcy is on your credit report will vary based on what type of bankruptcy you use. Chapter 7 is going to last longer than Chapter 13 due to several reasons.

Income Requirements

One key difference between Chapter 7 and Chapter 13 is the income requirement. Chapter 7 does not have any income requirements, which means that anybody can use this form of bankruptcy to get financial relief. However, Chapter 13 is a bit different due to it requiring you to have a regular income. This is because Chapter 13 uses a repayment plan to limit the impact on your credit history, which requires regular income to determine how much you can pay back.

Repayment Requirements

Chapter 7 bankruptcy is unique because it completely discharges many debts without having to repay them. This is the opposite of Chapter 13, which does have a repayment requirement. You won't be repaying the entire debt with Chapter 13, but a portion of it over a specified period of time, based on your income. The repayment requirement is also why Chapter 7 bankruptcy doesn't require regular income because there are no expectations to pay the debts back.

Personal Asset Protection

Do you have assets that you are looking to hold onto after the bankruptcy is finalized? Know that Chapter 13 allows you to hold onto more assets when the bankruptcy is over due to the repayment plan. As long as you're making those payments until the agreed-upon time, you'll be able to keep certain assets.

Chapter 7 is a bit different since it typically requires that you sell many of your assets to pay as much as possible toward your debts. While there are some assets that are protected, such as a certain amount of equity you have in a car or home, Chapter 7 typically requires selling assets.

Contact a local bankruptcy attorney to learn more.